April 30, 2020 (PPI-OT)

Following is the text of press release issued by VIS Credit Rating Company Limited


VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of U Microfinance Bank Limited (UMBL) at 'A/A-1' (Single A/A-One). The medium to long-term rating of 'A' denotes good credit quality, with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of 'A-1' denotes high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. The subordinated Tier 2 TFC rating has also been maintained 'A-' (Single A Minus). The medium to long-term rating of 'A-' denotes good credit quality coupled with adequate protection factors. Further, risk factors may vary with possible changes in the economy. The previous rating action was announced on April 30, 2019.

The assigned ratings to UMBL reflect its association with a strong sponsor, Pakistan Telecommunication Company Limited (PTCL). PTCL has been assigned an entity rating of AAA/A-1+ (Triple A/A-One Plus) and is co-owned by the Government of Pakistan and Etisalat International Pakistan (LLC) (Etisalat). Management control of PTCL rests with Etisalat, a state owned Telecom Corporation of UAE. The implicit support from the sponsor was witnessed with the recent conversion of Tier-II Subordinated Debt amounting to Rs. 800.m into common equity to relieve the stress on capitalization indicators of the bank.

The revised business strategy aiming for increased market penetration and enhanced geographical outreach culminated in expansion of branch network leading to increase in market share of the bank to 7.2% (FY18: 6.2%) during the outgoing year. UMBL also provides Branchless Banking (BB) services at the national level with significant progress noted in the area of digital lending. Additional hiring has also been undertaken in various business and control functions with significant increase in the number of field staff. In terms of liquidity position the bank is comfortably placed. The ratings reflect downturn in the financial risk profile of the bank owing to higher incidence of non-performing loans leading to higher infection ratios; the same is a result of deterioration in sector dynamics prior to advent of COVID-19 pandemic. The downturn in asset quality has put a drag on the institution's profitability.

With the advent of global corona virus pandemic and the following lockdown, the microfinance borrowers will have a further reduced capacity of meeting obligations. Given UMBL has a predominantly bullet repayment structure, the ratings take into account SBP's relaxation on repayment terms for borrowers as per issued guidelines of the regulator. Status of the rating is therefore uncertain, as an event of deviation from expected trend has occurred; additional information will be necessary to take any further rating action, warranting a 'Rating Watch' status. Going forward, improvement in assets quality, maintenance of liquidity indicators and retention of buffer over regulatory capital requirement will be important rating drivers.

For more information, contact:Director Compliance and Rating Analytics,VIS Credit Rating Company LimitedVIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,Phase VII, DHA, Karachi, PakistanTel: +92-21-35311861-72Fax: +92-21-35311873Email: bilal@jcrvis.com.pkWebsite: https://www.vis.com.pk/


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